Ericsson: 5G Unlikely to Kickstart Telco Spending
The boss of Ericsson's businesses in Europe and Latin America does not think the emergence of 5G technology will lead to a significant increase in operators' spending unless it brings about growth in their revenues.
Arun Bansal says it is unlikely that 5G will lead to a hoped-for uptick in the spending cycle while operators' own revenues remain under pressure.
"Operators are challenged themselves and revenues are not increasing and until they do their capital expenditure will not go up significantly," he says. "5G is still a few years away and unless operators start to create a new source of revenue through industrial use cases, or use cases other than mobile broadband, it will see a gradual rather than a mass rollout."
The candid remarks from one of Ericsson's most senior management figures may trouble investors who continue to regard 5G as a big sales opportunity for equipment vendors like Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK).
But they lend weight to the assessment of analysts who have long expressed skepticism about the 5G business opportunity. (See The Growing Pains of 5G.)
Bengt Nordström, the CEO of the Northstream market research and consulting group, is one prominent market observer who doubts that 5G technology will fuel sales growth at operators or their equipment suppliers.
Like Bansal, Nordström sees little revenue-growth opportunity in 5G as a mobile broadband technology, pointing out that earlier generations of network technology have failed to bring about a sales increase at telcos.
Nordström is also dubious that 5G will open up big revenue opportunities in non-consumer areas, including the machine-based services that form part of the much-hyped Internet of Things (IoT). According to predictions from Northstream, most operators will generate no more than 1% of total revenues from IoT services in future.
Bansal, however, is clearly more optimistic about this "industrial" side of the 5G story. In Europe, he says, operators are showing interest in 5G mainly because it promises to reduce latency, the delay that occurs in sending signals over data networks. With these low latency capabilities, service providers believe they could support entirely new applications such as autonomous driving or remote-control surgery.
While a 5G standard supporting higher-speed connections is due to appear in early 2018, the versions of the technology that promise lower latency will take longer to arrive.
That explains why Europe's operators are sometimes perceived to be "lagging" on 5G, says Bansal. "There is no low-latency solution until the end of 2018 or 2019, and hence there is no discussion of 5G deployment [in Europe]," he says. "North America is driving a use case which is more fixed wireless access and more about high speeds -- that can already be addressed by LTE-Advanced Pro and then enhanced with 5G."
Asked if this means there is less appetite in Europe for positioning 5G as a mobile broadband technology, Bansal says it will take longer for European operators to make those investments.
"Data consumption in Europe is lower than in Asia or North America and so Europe doesn't yet see the need for those capacities on its networks," he says. "There may be a lag of one to three years but eventually operators will need to deploy 5G to handle higher capacities."
Despite this lag, and the expectation that a low-latency 5G standard is some way off, Ericsson is already eyeing 5G opportunities in the European market.
Announced this week, a WiFi-based "connected stadium" deal with the UK's Chelsea Football Club could eventually morph into a 5G deal involving a service provider partner, says Bansal. (See Ericsson Eyes 'Carrier-Neutral' 5G Through Chelsea FC Deal.)
In such "hotspots," enterprise organizations may have a need for both high-bandwidth and low-latency connections to support customer and organizational needs.
Nokia, one of Ericsson's biggest rivals, has also suggested that 5G rollout will happen very gradually, saying it expects the technology to "co-exist" with older 4G networks for a long time.
The Finnish vendor has predicted that revenues its in main addressable market of serving telcos will increase at a compound annual growth rate of just 1% over the next five years.
— Iain Morris, , News Editor, Light Reading